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  CSPAN    Today in Washington    News/Business. News.  

    February 27, 2013
    7:30 - 9:00am EST  

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authority to assess the individual circumstances. it is worth making the point again, a 23 billion-pound budget, 50% increase over the last decade, we have to do something about the growth in housing benefit bill, and all we hear is their responsibility from the party opposite. >> mr. edward liddy. >> who would have thought when some of us voted for just a common market all those years ago that the eu would now be interfering potentially and what benefits we should be paying two romanians and bulgarians before they have made any occupation to our society? is it any wonder people feel disillusioned and callous? but isn't the good news is, who is more likely to vote to give people a genuine choice of a referendum, a liberal or a conservative or eastland?
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>> well, i'm delighted by my honorable friend managed to slip the point in at the end. i won't urge any i will friends to make their way to support the reelection and the campaign. but the point, the point that he makes is very important, which is we need to look through every aspect of how we welcome people to our country, and make sure why we must to be fair, we must not be a soft touch. so i am making sure we look at our health service, we look at housing, we look at benefits. with that illegally, we look at all other things and make sure proper and tough controls of people who want to come and live here. >> the treasury was required to -- [inaudible]. if he believes in openness in the in hs, why has this government allowed the size of its playoff to be kept secret? >> well, i will look very
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closely at this issue that he raises. i know there have been particular issues around foundation trusts in the area which he represents, and i will make sure that health secretary looks at the issue. >> recently, large numbers of my constituents have taken a great interest in political campaigning in the neighboring county. my belief is it's always best if local people have a strong, independent voice, particularly if they're in favor of controlling immigration, making welfare fairer, and in being referendum. does the prime minister agree with my advice at the people of east lake will be well advised to vote from -- [inaudible] >> i want to thank my honorable friend for his hard work and for the ingeniously managed to get a question in order. just -- spent you shouldn't keep yelling from a sedentary position. sarah palin, she is not a
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candidate in peacefully. the prime minister. >> if you have any luck in getting the auto member to shut up, then do let us know how it is done. [laughter] let us know how it's done spent the prime minister shouldn't bother boning me. >> thank you. thank you very much for that, mr. speaker,. [laughter] perhaps we can and primers of questions on a similar note to that which would begin it with, with recognizing the appalling views of the labour candidate in peacefully. he said this, he said this about the war, one of the proudest moments of this country's recent history. i settled, he said come on the convoluted position of wanting great britain to lose a war for the good of great britain. this candidate endorsed by the leader of the labour party has shocking lack of passage for national pride. >> mr. speaker, the prime
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minister has run away from the question as to whether he will personally benefit from the millionaires tax cut. it's a simple question. when the top rate of tax is cut from 50 p. to 45 p., while he personally benefit? >> the topic of tax under this government will be higher than any year under his government. that is the change would bring about. when they introduced a 50 p., they lost 7 billion pounds in tax revenue. they are not only a socialist, they are incompetent socialists to boot. [shouting] >> order. point of order. >> following the advice you gave on monday of this week, mr. -- >> we leave the british house of commons as to move onto other legislative business. you've been watching prime minister's question time aired live wednesdays at 7 a.m. eastern while parliament is in session. you can see this weeks question time again sunday night at nine eastern and pacific on c-span.
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for more information go to c-span.org, click on c-span series for prime minister's question. >> i'm of the opinion that based on how they acted in other instances, they would've grudgingly favored a bailout of lockheed, because the supplied the united states at the time with its top fighter jets and its top reconnaissance airplanes. i think you can make an argument that they would've supported, for example, the bailout of chrysler back in the 1980s but
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not the bailout of chrysler today. what's the difference? chrysler back then made tanks. they made the m1a1 tank. in fact, they were our only tank manufacture. and it's interesting when chrysler comes out of debt and reduce a government loan and 10 comebacks -- comes back to health, the main way to do so is by selling off the tank division and plowing the money back into the company. >> author and university professor larry schweikart will take your calls, e-mails, faced the post in tweets on the founding fathers and other key events in american history at in depth life sunday at noon eastern on booktv on c-span2. >> u.s. airways and american airlines have proposed merging the companies. yesterday, house judiciary antitrust subcommittee look into the proposed merger. hearing from airline executives and legal analysts. if approved by federal regulators, the new airline, to
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be known as american airlines, would become the largest in the country. this is two and a half hours. >> good morning. the judicial, judiciary committee on antitrust regulatory reform administrative law and bankruptcy is in session. by way of introduction, this is the first hearing of the year for the subcommittee. chairman kohl at has give give e great privilege of the chairing this great committee and under -- under a static has jurisdiction, the jurisdiction to me has a duty to examine the competitive impacts of significant transactions on the marketplace. it is a responsibility that i take very seriously from the standpoint of consumer choice and the functioning of free markets. today's hearing is to specifically examine the proposed merger between american airlines and us airways.
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the resulting airline, with a 24% market share, would become the largest of what might be called the four legacy u.s. carriers. the department of justice will conduct a detailed review of the proposed merger under the hart-scott-rodino act. there will be several other layers of scrutiny both here in the u.s. and in europe. this hearing is intended to provide information to the public, not to state a subcommittee policy position. although i think there'll be independent, i think each member will have independent opinions, and are obviously free to state those. the airline industry has been in a state of near-constant change and innovation since federal deregulation in 1978. we have a marketplace in which familiar names that i grew up with, like pan am and twa, no
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if you traveled overseas or in the south, eastern, southern, no longer exist. to either merge, bankrupted or have gone out of existence. but we have also seen the emergence of new carriers with different business models like southwest and virgin. the embracing of electronic technology has created online booking and instant price comparison tools that have greatly benefited travelers by expanding choice. that is the competitive free enterprise system at work and it is the cornerstone of our economy. however, there are questions that naturally arisen during the airline mergers. and today's hearing offers an appropriate forum to pose them. the issue that many consumers would be interested in knowing about, to the extent it can be answered, is the potential impact on their cost of flying. service routes are also a
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who will -- concern as are the levels of service that will be offered post-merger at the current hubs of american and us airways. from a broad competitive perspective, there is the issue of airline market share at individual airports, the overall market share held by major carriers, and the prospects and implications of future consolidation. our goal today is to facilitate discussion. just as consumers are served by clear and transparent pricing when they shop online for a plane ticket, so are they served by good information and by comparing different points of views. we welcome all of our witnesses and look forward to your testimony. i now recognize the ranking member for his opening stateme statement. >> thank you. >> either one.
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>> i yield to mr. condit. i always yield to mr. conyers. >> thank you. >> he is mr. rose a parks. >> i served with them, too, and i would recognize him first. spent i thank you both for your generosity. we come in today looking at a very important part of economic systems that has -- this country, and i've always worried during previous airline mergers, and without prejudging the merits of the one that brings us here today, we should recall that both parties to this merger bear a higher burden in
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demonstrating the greater consolidation in the airline industry is warranted. one of the arguments advanced in favor of some past mergers, delta, northwest, united, continental, was acclaime the ct there was too much capacity in the industry which led to excessively low fares that prevented carriers, particularly so-called legacy carriers, with their higher costs from earning a sufficient income. we got to consider whether this is still the case. while america is in bankruptcy -- pardon me -- it is poised to successfully we organized with billions of dollars in cash and reduced costs as a result of we organization.
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moreover, u.s. airways posted record profits. these facts suggest that both airlines are, in fact, perfectly capable of surviving, even a thriving, as standalone companies. industry consolidation may benefit the airlines that remain by giving them power to raise fares and fees, but it comes with costs to the consumer. and as has been noted, it may result in higher fares, fewer consumer choices, particularly in of and cities where to carriers over love. in retrospect, the effect of the mergers suggest that, in fact,
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fares did rise on some routes, where the two merger partners used to compete. given the size of the big three, legacy airlines that would remain after the merger, it's not entirely unreasonable to suggest that they would have even greater power to tacitly agree to raise prices. undermining price competition and harming consumers in the process. indeed, if american and u.s. airways were to merge, more than 70%, by some estimates as high as 86%, of the domestic airline industry would be controlled by just for airlines. i fear that the flying public will see relatively few benefits
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while bearing much of the cost of this potential merger. another related issue is whether the low-cost carriers can continue to provide effective, competitive pressure on what would be the big three legacy airlines, should this merger of her. .. against large legacy carriers.
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there's reason to wonder whether southwest will continue to play the traditional role of an lcc on competing on ticket prices now it's part of a big airline. and finally, we must consider what impact this will have on workers at the two carriers. in stark contrast to previous airline mergers, the unions representing american and u.s. airways with the exception of the machinist have come out and public support of this merger. and the machinist have said they could support it but only after u.s. airways renews the contract with their own members first. in indeed americans unions have been instrumental in pushing for this merger. so i will submit the rest of my statement, mr. chairman, and
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thank you for your generosity. >> thank you. >> thank you, mr. chairman. i want to thank you for holding this hearing, and on an issue of that is great importance to me and my constituents, in a free market economy like ours, companies are general free to organize themselves and their assets as they see fit including by merger. there's nothing wrong with them including if they form big companies. competition spurs innovation and assures that the market allocates. it benefits consumers and fosters economic growth. because a free exacter cannot flour rich without competition. a merger that decreases it can gorped mine it. specifically section vii of the
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clayton act prohibits mergers that lessen competition or tend to create a michelle obama. -- monopoly. that is essential to a healthy market. recently two of the four legacy carriers in the -- and u.s. airways announced plans to merge. the results entity would be called american airlines lead by u.s. air's chief executive office. the department of justice must review this. it's a technical inyour i are and the department should be guided by the facts and the law. the basic question that the department should seek to answer is how this merger's impacts on competition would affect consumer welfare. congress has an oversight responsibility to insure --
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ensure that the department of justice conducts it is in thorough, fair, and reasonably prompt fashion. the department should ask whether it would enable american to raise ticket prices or ancillary fees, or reduce services especially routes currently served by both airlines. it should ask whether there's sufficient competition on the routes such as from low cost carriers to keep a post merger american airlines in competitive check. it should ask whether a post merger a new carrier would move to an route served by american and begin to compete. to put it mildly, the airline industry changed a great deal since it was deregulated. new airline with new business models have sprung up to serve consumers. other airlines have gone bankrupt. some of the latter have returned from bankruptcy. others have merged and failed all together. ed in the last fiver years, the house committee held hearings on two major airline mergers delta
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southwest in 2008 and united continue then tal in 2010. five major airlines now control an estimated 80 percent of the domestic market. if the merger goes through the number will decline to four. should it be the last merger in the airline industry? would allowing this strike the right balance between competition and the bankruptcies that have occurred in the industry recently? a major concern any time there is fluxuation in the airline industry is how smaller airports which depend heavily on routes to and from larger hubs would be affected. for travelers leaving from my district, it is a major hub destination and. it is by no means clear the merger would have all or any of the negative effects that an airline merger can produce.
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american and u.s. air maintain the routes are compliment i are not overlapping and enhance it by giving the fourth and five largers airline a stronger competition which compete with the other three. congress has no formal role in the department of justice review process. congressional hearings provide important public venues to ask, debate, and identify possible answer to the questions which are of great importance. rather than rushing to judgment, my hope is that everyone involved will take care to vault the evidence and do what is best for competition and consumers. i look forward to the testimony of the witnesses, debate, and in the end a wise decision by the department of justice that ensures a competitive future for the airlines industry and protects the welfare of american travelers. thank you, mr. chairman. >> thank you. this time mr. cohen,
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subcommittee chairman. >> thank you, chairman. it's the commercial and antitrust law. we used to call it cow. i thank chairman bacchus for choosing the topic of the merger for a first hearing and i want to say i look forward whey hope and know will be a working relationship. the third saturday in october is not the only time alabama and tennessee get together. as an initial matter, i note unlike previous mergers the union represent workers at both of the airlines have expressed strong report. that's encouraging. some news account suggest that the unions were instrumental in agree together move. mr. chairman, i ask consent that the final joint release between the different unions be entered with the record. >> without objection. >> also i ask unanimous consent of a letter president of the association for professional flight attendant in the
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statement chairman of the pilots association expressing support be entered to the record. thank you. i understand why labor supports this it employs that both carriers forced to get a better deal. which is more than unfortunately for employees of -- as we consider the merit of the early merger we oughted to be look back with the certainly e similar searchers to to see what happens and while i respect the views of labor in support of the merger and recognize no two mergers of or airlines are necessarily alike. the merger of northwest and delta has shaped my image of airline mergers. prior to the merger, northwest operated a significant hub in memphis. given the closeness to atlanta. in this very room, in 2008,
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richard anderson delta ceo said about the future of the memphis hub, it will be additional. it will be more business for memphis not less. i expressed concern to him about reduced service or outright elimination of the hub and asked about continueuation of the memphis amsterdam flight. at the hearing mr. anderson testified there would be no hub closure and the merger would maintain international flights. he went further to say we can expect more international flights and suggest the memphis to paris is going to happen and more flights and enhance the status of traffic and service at the memphis international airport. he said it would add not delay take away from the memphis international airport. he said he knew memphis when northwest he loved the ribs, the city, he knew how great the airport and managed it was. how the time on the tarmac and taking off was less. they saved oil and the best
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connections they could have. those facts were true. his response was not. i ask u.s. air and america to look at his statement and understand the memphis international airport is a place they should be and when others airlines didn't come to memphis. it u.s. airways did. they added more flights for a price. we like that competition. when frontier airlines thought about coming to memphis. northwest cut the prices. that eliminated the opportunity for frontier to come in. later people expressed interest to coming to memphis. because deal that had a come that market share people didn't. the opportunity is there. there was 240 flights day before the merger. s a of december there are 40% of that service or simply 96 flights. it would not surprise me to see
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further cuts on saturday it looks like dodge city. ribs are plentiful. there's opportunity for u.s. airways to come to memphis and fly the routes. and to serve memphis. delta has used the base in memphis to lower not to keep carrier outs not have real competition. memphis consumer pay higher prices than any airport in the country. it caused businesses to not choose memphis as a place to come. federal express needs the service. it takes some of their product and puts it on the airlines. which can help your airline serve memphis. call fred smith, he'll tell you come to memphis. so do i. so there are plenty of reasons why when we look at the merger, i understand wonderful things i've heard about the two of you. and may need to look it at differently. we heard from richard anderson. but the basis upon which he made these are vailed.
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it's a fine airport, great service, great weather. great opportunity to save on fuel. and a great city to serve. i appreciate your being here, i appreciate mr. bacchus scheduling this hearing. i look forward to the testimony and u.s. airways and american serving memphis, the great city. the great airport that it is. thank you, mr. bacchus. i give you a statement also, and ask you to answer this to enter a statement from mr. mcgee on the consumer union expressing concern. >> without objection. >> thank you. i yield back the balance of my time which doesn't exist. it's traditional to yield it back. >> i guess let the record show that mr. cohen doesn't want you to merge with delta airlines. [laughter] our witness, our first witnesses without objection, are the members opens statements will be made a part of the record. and this time i'll introduce the
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witnesses gary kennedy, representing u.s. airways -- no american. you go first. okay. senior vice president general could counselor in chief american airlines mr. kennedy districts all of american's legal affairs worldwide. mr. kennedy also districts american's corporate compliance program and overseas government ever corporate government -- corporate government matters before joining in 1984 he practiced law in salt lake city. mr. kennedy is a -- university of utah where he was a member of he received the j. d. from the university of utah school of law. we look forward to your testimony, mr. ken i did. as i'll tell you privately before be of the hearing started i have seen tremendous
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improvement in u.s. airways operations, and the staff and the service. it's been a real transformation. i compliment you on you and the management team at u.s. airways. you're american and i'm complimenting you. i should have been complimenting mr. johnson. but i apologize for that. no i'll get to mr. johnson and compliment you. mr. johnson, the executive vice president of corporate government affairs the u.s. airways where he oversees corporate, legal, and regulatory affairs. prior to joining u.s. airways in 2009, mr. johnson was a partner of indigo partners llc a private equity firm specializes in accusations and strategic investment and the airline and
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arrest -- aerospace industries. he earned the mba and jd from the university of california berkeley and the ba in economics from call state university and sacramento. thank you, mr. johnson for testifying. and what i said to mr. kennedy about u.s. airways, obviously applies to you. but it i did tell both of you all, i was thinking we're going testimony is going to be flipped, but it really is a well managed airline. i don't travel american. so i really don't have that many occasions to travel on american. but when i did, it was very professional. our third witness is mr. kevin
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much l with the -- mitchell. chairman and founder of the coalition where he advocates for the corporate travel community in north america, europe, and asia. he has over forty years of experience in many things. before joining founding the btc, mr. mitchell served as vice president of sigma corporation and he received the ba in international relations from saint joseph university in philadelphia in 1980. thank you for testifying. our fourth witness, professional sagers professor of cleveland-marshall college of law. he specializes in business
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regulations law. before joining the academy, professor sagers in private practice in washington, d.c., at the law firm of arnold and porter. he earned the jd cum university of michigan school of law. thank you for testifying, professor sagers. our last witness is dr. clifford winston, ph.d. at the brookings institute. senior fellow in economic studies there. the research focusing on analysis of industrial organization and regulation and transportation. he was the coed or it of the manual microeconomic edition of brookings paper on economic activity and has authored numerous books and articles. before coming to brookings,
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dr. winston was associate professor at m.i.t. dr. winston went university of california berkeley and the london school of economics. thank you for testifying. mr. kennedy, you are up first. your opening statement. >> each of the witnesses written's statements will be entered to the record in the entirety. and i ask each witness to summerrize the testimony in five minutes or less. to help you stay within the time there's a timing light on the table when it switches from green to yellow you have one minute to conclude your testimony. when the light turns red it means your time has expired. i'm more lenient than most. if you need to go on, that's fine with me.
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i now recognize mr. kennedy for five minutes. >> senator bacchus, ranking member cohen, thank you for the opportunity to testify today. my name is gary kennedy i'm the senior vice president for american airlines. i've been involved in both the chapter 11 restructuring of our company and the proposed merger between american and yairls. u.s. airways. the airline industry has experienced turbulence over the decade. the shock waives from the event of 9/11 treated enormous difficulty and the u.s. carriers grappled with the ways to survive create bid the terrible events. in 2003 american airlines on the brink of filing for bankruptcy protection. thanks to the willingness of our organized labor represents, take the steps necessary at that time to reduce costs, we avoid a
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chapter 11 filing fortunately next eight years we struggled to find a way to financial stability. despite our best efforts, our losses continue to mount reaching $12 billion over the previous ten years. in november much 2011, our board came to the painful conclusion that time had run out. the only viable path forward was to restructure our business under chapter 11 of the bankruptcy code. there's no easy way to describe how difficult our bankruptcy reorganization has been for the company and our employees. beginning at the top of the organization, we reduced our senior management ranks by 35 more than. we then moved to the balance of the organization making necessary changes including the reduction of 15% of total management staff. meanwhile, we began renegotiating secured obligations, our leases, and our
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contracts with venders. we also negotiated new long-term contracts with each of our organized labor groups. these new contracts include productivity improvements and changes in health and retirement benefits. at the same time, we increase pay for our employees, and mitigated job losses by offering retirement incentives. one of the most important objective we achieved was to freeze rather terminate the employee pension plans as a result, we now expect to fulfill the obligations rather than unload them on the pbgc has other airlines have done. of course, all we have accomplished was done in the context of the chapter 11 case and in consultation with the unsteered creditors' committee. by mid summer last year, we made sufficient progress that we decided in con jenture with the creditor's committee to embark
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on a formal process to consider merger with united airlines. it was -- u.s. airways it was clear from the outset that a merger with u.s. airways could create significant value for our stakeholders and bring substantial benefits to the traveling public. we have conservatively estimated that by 2015 revenue and cost synergy will outweigh cost dissynergy by over $1 billion. this combination will make our company a much stronger competitor against the other large airlines. we're under no illusions that mergers are easy or seamless. we have agreed from the outset to do e.g. in our power to learn both from the success and the mistakes of those who have gone before us. many of the most important decisions have already been made. the combined company will use a great american airlines brand. the company will remain headquarteredded in the dallas fort worth area and all hubs
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will be continue to be hubs in the the new american. our ceo, tom, and u.s. airways ceo doug parker will jointly lead both the transition team and the new american as it e americas from bankruptcy. mr. park will be ceo of the new company, and mr. horton will be chairman for the board. i understand and recognize that many members of congress are skeptical of promises made and concerned about industry and sub concentration. as for the former, we do not sphwoand make commitments that we cannot keep and as for the latter, it is clear that this merger does not create a high degree of concentration. above all, however, i would urge you to concert the facts with which i began my testimony. nothing has been more damaging for the airline industry, our employees, our customers, and shareholders than the years of economic turmoil we have experienced. this transaction is unique in that it is endorsed by all of
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our labor unions and embraced by management and the boards above companies. we know we have a solid obligation to implement this transaction with great care and thought. we're eager do so. thank you for the opportunity to testify today. >> mr. johnson? >> thank you mr. chairman. thanks to the entire committee for having us here today. it's an honor to testify before the subcommittee about the merger of american airlines and u.s. airways. the creation of the new american will be good for competition, consumers and choice. expanding the networking for the customers, employees, and shareholders is the motivation for bringing them together. integration of the complimentary networks will enhance competition in an already highly competitive marketplace. it will also deliver significant benefits to each of those
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constituencies. our customers and communities will benefit from more and better service. our employees will receive improved pay, better benefits, and job security. and mr. chairman, i would like to acknowledge the fact there's about 30 of our colleagues here in the room with us today who came to join us for the hearing and thank them for joining us. our shareholders will benefit from improved financial stability and $1 billion of synergy create bid merger. we are proud that the combination has won support from the 100,000 employees of financial markets and the communities we serve. the u.s. airways team has been a leader in delivering customer service. we have long recognized we can do more. airline passengers made it clear what they want are broader networks capable of taking them whenever they want to travel whenever they want to go. i beginning the system of american airlines and u.s. airways it will build the networking arc passengers want. one that will compete with the networking of delta and
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northwest and the low cost carriers like jetblue and southwest. the passenger benefit. new american airlines stem from the complimentary naimp. by beginning these we add origin, destination, and hubs to a networking with very little route dip indication. indeed out of the nearly 900 domestic routes whether he serve american airlines and u.s. airways only have 12 nonstop overlaps. also u.s. airways has provided extensive service. it will allow us to extend the focus to the american airlines system. combining these networks will create new exciting international opportunities. we will provide thousand of passengers better alternatives with over 1300 new routes worldwide. in addition the customers will have the potential to access -- sorry have the access the potential to access over 130 cities around the globe served by american but not yet served
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by u.s. airways and 62 served by u.s. airways but not yet by american. and by adding u.s. airways we will enclose competition on international routes by creating attractive opportunities for additional service. domestic markets will become more competitive. although it will be the largers airline in the u.s., the american airlines will have less than 25% of domestic available models and will compete against the nationwide model of delta and united and southwest each with 19%. the american airlines will also compete against southwest significantly lower cost structure. and host of smaller but fast growing lower cost airlines including jetblue, spirit, and virgin america. also important as we increasingly think about competing in a global airline business, the combination of american and u.s. airways will create a third thairl can compete successfully with major
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international airlines. the american airlines will be a financially stronger company. it -- of american will return that business to profitability and as a result of the combination we expect to generate over $1 billion as we increase revenue from new passenger taking advantage of the broader networking and improved service and reduce cost from scale and elimination of the system and management nap improved financial performance will provide americans bankruptcy creditors with an enhanced opportunity for a full recovery result unheard of in airline bankruptcy and create more financial stability in the extremely -- airline industry. that financial stability also provides significant benefits to our employees including better pay and benefits greatly approved job security and better opportunity for advancement. it's not surprising the merger has generated unprecedented support for employees of worth
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companies, the labor union, and the communities which they live. antitrust review is important and we are already working with the justice department to demonstrate the competitive benefits. woe appreciate the opportunity to address the issue with the subcommittee today and commit to working with you. we announce the merger twelve days ago. there are many issues to be resolved. i'll do my best to answer any questions you may have today. thank you. >> thank you. mr. mitchell. >> thank you, mr. chairman, and members of the committee. this morning i'm going explain one threat to price transparency enabled by the merger that has been agreed to by airlines but has not yesterday caught the eye of the -- i'm presenting the testimony this morning on behalf of the american antitrust institute. in 2008, i washed this and other committees in testimony of the dangers of the then proposed delta southwest merger. and what those dangers would
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hold for consumers. i remember well that northwest ceo testified that committee members shouldn't be concerned because the market disciplining effect of third party distributers such as expedia is so pervasive and important that they create this transparency, he said, that will keep prices low. he used this transparency to justify the merger and he was right back then about the effects of traps parent sei. -- transparency. today however airlines have agreed on a brazen new worldwide business model how to price and sell tickets. it's designed to destroy tries transparency which is the -- the model called new distribution capability or ndc and the airline trade group is
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spearheading implementation. it's designed to terminate by agreement among competitors the care and transparent model for pricing of tickets are fares are published and publicly available for comparison shopping and purchased by all consumers on a nondiscriminate story basis. one problem, it has decried publicly the comoddization search capability of the very online travel agencies that he talked about. for example, tony tyler, director general stated in a press interview we mark belie, and i quote, we have done a great job of improving efficiency and bringing down cost. we handed the benefit straight to the customers. as soon as someone's got -- instead of charging the same price and making a profit, they use it to undercut the competitors and end the value straight to passengers or cargo
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shippers. and you have to ask why said tyler. i think one of the reasons is the way we sell our product. it forces us comodtize ourself. that is in d.c. a binding resolution -- have agreed that they have the right to demand from consumers before they would be privileged to receive a fair quote, personal information including name, age, nationallalty, contact, details, frequent flier numbers of all carriers, whether the purpose of the trip is business or leisure. prior shopping and purchase travel history and and all things marital status. why is the program so toxics? air fares would no longer be publicly filed and available on a nondiscrimination basis for consumers and purchased through travel agencies. instead each price would be
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unique depending on the profile of the consumer. this personal information can be used to extract higher prices from less price sensitive travelers such ass by travel leers. in contrast today when a consumer wants to the fairs and -- are returned so she can easily compare prices without having to divulge personal information. it is this very price visibility that checked power of airline to raise fares unless they lose out to competitors offering a better deal. price transparency is even more important today because when he testified, there were six networking carriers then there were five and then four, now we're heading to three. by eliminating transparency airlines will have creates by concerted action a new system of completely opaque pricing and
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with it the ability to raise all fares across all systems. the nexus between this merger, this merger eliminates united u.s. airways it will be far easier to coordinate expressly among three networking competitors. and far easier to impose this model. especially given the clout that new american would have as the biggest carrier on the planet. the lack of transparency created by ndc further smiments the dominance of the mega carrier. and once in established here in the largers market, it's going to be lights out, game over for consumers. two remedy. dot has the authority to improve ndc. given the anticompetitive effects and innovation of privacy, dot should reject it without the condition. number two, doj, they should serve it and the members with
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spearheading the scheme with a cid to discover the purpose that objective of ndc and the process by which hornet horizontal -- thank you, mr. chairman. i would like to add that the american antitrust substitute is looking at ext ty effect. >> thank you, professor sagers. >> thank you very much. so my friend diana mass, told me i should be getting hazard pay for being here today. i am here, i'm afraid to suggest some reasons not to be so optimistic about the merger. i notice there are a lot of captain uniform behind me. i have to say when i'm afraid to leave here to go home i'm going to be a no-fly list.
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i hope that's not true. >> they are all friendly. >> i'm sure they are. i'm not going to say what airline i'm on. i'll notice dr. winston he's subsequently to my left and also going probably say a few things in disagreement with me. he's an imminent person. no person could study the antitrust treatment and competition in airline markets without studying his work. and yet he and i are going diseeg about few things. but the most encouraging thing i have heard today so far is chairman good lot goodlatte's statement. it's not ideological. i don't have any own feelings of supporters behind me. i don't have any staff to help me in support them. i'm only here to speak in favor
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of a policy that is supposed to protect everybody including us arch folks. and so guys like me come and talk about it a a alone. here is my basic thought in the brief time i have to describe this complex deal. i think that in policy consideration of transactions like these, complexity is the defendant's threat. it's the merging party's friend. it suspect the friend though of most other people affected by transaction. i want to describe a few things to me seem relatively simple. first of all, there will be a lot of discussion and seem complex because it seems to require a lot of understanding of complicated industry facts. it's not a complexity -- proported benefits. i'm not even really going to talk about the benefits.
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i personally don't think worth dwelling on. at least not here. because we all every single one of us has been to the rodeo before. we have seen many mergers in many industries and seen many americaers in the airlines in the years since deregulation. they have always been said to propose these same benefits or benefits like them, and quite often they have been disappointing. the promises are typical not kept and sometimes they lead to painful disappointment. i'm going start with something relatively simple the competitive effects. there isn't time for me to address it fully. i will say this, in the written statement i read last night, and i read them all the most remarkable statement was that in this merger, among the thousands and thousands of daily flights
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to cities across the united states, that are controlled by the two carriers, the only overlaps that matter in the whole beginned networking will be 12 overlaps or twelve flights. we could deal of in complexity. we should ask ourselves among the thousand and thousands of flights are there reasonable on 12 cities which the two carriers provide competition with each other. that will be lost in the merger? i don't think so. for a brief -- you can look at the white paper produced by american airlines institute attached to mr. mitchell's statement. they will say, unfortunately i have a brief remaining time to say it is that a dominating theme of all discussion of airlines mergers since deregulation habit economic
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difficulty of the carrier. the claim is we have to merge, we have to consolidate to strengthen others so we can perform. there are thoughts about that. the carriers have never offered any very plausible exflags why merger. it has to be merger that is going to solve our economic problems. it can be often have suggested a lot of detailed arguements. but again, i think the response is relatively simple one than is that we had a long time. we had 35 years of dozen of mergers every single one of which has been sold on the claim that synergy are going makes competitive. it hasn't worked. the airlines have remained the legacy mostly economically in dire straited throughout the
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whole time. thank you. >> dr. winston? >> sorry. thank you. i'm happy to be able to testify at this merger. i testified at the delta-northwest merger in 2008 in support of that merger. and i support this merger. we i have some new perspective to bring. i'm not just going read my own old testimony. and what i think i'll do in the short amount of time given what we've heard as packaged by written presentation and oral presentation beginning with my conclusion. mergers -- all mergers not just
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airlines involved in the trade-offs, that is mergers trade-off benefits from economies and lower costs. that's the mous claim to them. and then the ain't competitive concern that you're losing competitor and raise prices. traditionally when we think of them we start off with trade-off. naturally you'll hear them and you have heard them as expected. what i think is interesting about airlines and i didn't stress this enough before. i think it's true now, we don't have to think of these anymore as trailedoffs. now -- trade-offs i'll be bringing in an additional policy perspective. i think that was appropriately done by mr. mitchell raising the concerns about what is going on with how tickets are distributed. that additional policy perspective is the growing reality where this industry is going. and that's globalization. it's a global market. we have -- where are we to be
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going? something we have been moving toward and ultimately -- allowing for carriers to serve in the u.s. and, you know, if you think that is a strange policy, considering the automobile industry and imagine what if would be like if we if not have honda, toyota, et. cetera, building and assembling cars here. one wonders what is the case here. we don't allow british planes to fly in the u.s. ones you bring that perspective in to eye, things change radically. you don't have trade-offs. it's clear with the airline's job to be sufficient as possible, okay. and reduce costs, and what policy makers job to do is promote globalization and policy. promoting open skies [inaudible] that will give you your influx of competitors and make sure the e fresh sei improvement and largely transferred to
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consumers. the concern about competition go out the window once you think about that. but something else very important comes clear then. you get an more intuitive understanding why carriers are merging. think about what airlines involve. risky investment, okay, in billions of dollars in seats that are in the sky. all right. and it's risky because there are a lot of shocks we'll get to them shortly. what you want to do deal with risk is you want a portfolio. you can allocate the seats in response to shocks and risk. in a globalized economy you can imagine what people will do when things are tough. they'll move the capacity to another place. right. mergers enable you to do that. so i would suggest that the justification for mergers hasn't been semp -- emphasized enough is a way of dealing with risk. which is the inherit challenge
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in this industry. let me turn to why i think that. it comes out of deregulation. airlines operate in an low effective 55%. they have billions of dollars. they only use half of that. in retrospected you can see how crazy regulation was. what a waste. the same time airlines were shielded from the fundamental challenge that is matching capacity with dmeand and the shocks. you have to commit to capacity buy planes in advance and you think you know what demand is. you have to deal with fuel shocks, macroeconomic shocks, the gulf war, 9/11, and scwes ration. that's a challenging thing to do. what do you want to do? you want to have the ability to diversity and be able to
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allocate the seats. that's what mergers do and why the airlines have been doing it for the decades, i will contend. in the process of doing that, what do we see going on in the industry? what are the long run trend? real prices continue to go down. they continue to be below the reduced level in regulation to the benefit of deregulation preserved and most importantly low factors are going up. that's the key e fresh sei we want to look at. we are not operating at 65%. we're closer to 80 or 90%. i would suggest they are part of a tool. they're not the only tool but to deal in the long run with where the industry going and that's globalization. the airline should go along with it. allow us to spur competition in
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the industry. >> thank you. we will now proceed under the five-minute rule with questions and i'll begin by recognizing myself for five minutes. one thing, mr. mitchell an professor sagers didn't address. you talked about possible negative implications of this merger. but if it doesn't go through, there are some demonstrativeble negatives, very many, and i -- i wonder if you consider that a failure of american airlines -- [inaudible] whether it's been financially unsustainable. >> well, american airlines is exiting or will exit bankruptcy
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reorganization as a lowster cost carrier with billions of dollars in cash and cash e equivalent lens and new aircraft being on the order and the ceo has said countless times that they will be -- [inaudible] most successful earnings in the history. so i just don't buy to the notion that these are failing firms. it certainly doesn't apply as failing firm against the guidelines, the antitrust guidelines. they are able to compete, and to make the argument as you hear now that they need to be margin up to compete effectively with the new delta or continental
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united. they claim themselves they can compete against them. if you use the logic you have to get bigger compete with the next bigger carriers. we're going end up with two. the logic is flawed. there are many smaller independent carriers that do fine mixing it up. >> i would like to briefly add one thing. it seems like the biggest issue, right. if we have a huge business failure. my first point, i agree with mr. mitchell with that it's unlikely we don't see airline liquidation that off despite the huge financial difficulty the industry had in thirty five years. we have had a very painful unhappy experience during the past few years with this same basic problem, which is that we in the united states we don't have stomach for business failure. by not being willing to tolerate it once in awhile, we create a
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serious problem. which is that they will be rescued fail to learn how to compete in difficult markets. okay. in this case . >> we said this -- we have a bankruptcy law which allows you go in to bankruptcy and allows the creditors of a company -- the pension what the cbgc to agree on the best route out of bankruptcy. that agreement has been made . >> we have a bankruptcy law. but -- . >> what i'm saying. what these companies are doing is exactly what the law avails of any company. >> well, -- . >> they made a decision through the bankruptcy process that this is their best reorganization act. you know, you can argue on that, but that's -- they have availed
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themselves . >> i disagree -- . >> i know do you. one thing that -- and i have read your statements and what you said in them. but airline fares, you've talked about they have again up, they have as far as taking in to account inflation, they are one of the best, they are more competitive than they've ever been. the only reason they have been as cheap as they have is investors have pumped billions of dollars in to failing airlines. and i would say this, you both mentioned that they maybe had a few more compliment i are routes or not compliment but dop indications -- actually i can't recall a merger of airlines that had fewer dop -- coupe
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duplications than this. >> i'll reply if you'll let me. >> all right. >> okay. first of all, they aren't just doing what bankruptcy law allows. they are emerging with a merger. the subsidize we gave to the banks during the bailout -- . >> that is the bankruptcy plan. that's legal. >> yes, sir. >>, i mean, i took bankruptcy. >> they may well be. most people who emerge don't do it . >> most don't. that's an option. >> yes. >> and that's an option against them. and i would say this. i railroad attorney i remember rock island, and before the government continued to turn them down saying it was anticompetitive and you lost 10,000 miles of rail and stranded over 4,000 shippers because you didn't allow a viable merger. i can tell you that everything
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i've read, this is going to make a stronger airline, and i -- i say this. you could have stopped the mergers before delta and northwest. i'll agree with that. you could have stopped it before continental and united. you didn't and you created other airlines with a distinct advantage, if you don't let these two airlines merge. and the employees, the employees are for this. you know, we have received all sorts -- i have seen more favorable support from employees from unions. and in a time of deficit from the pension benefit guarantee program, which is not unimportant. >> mr. chairman, can i add one point? >> sure. >> from abc news, you know, we talk about the -- [inaudible] there are hundreds of cities that these two carriers currently compete on routes. that works out to 4900 routeds.
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>> let me say this, if you call competing with, -- which i saw a list. if youfully from birmingham and d.c. and you want to fly through dallas and take twelve hours as opposed to two hour. you can call that that they share that route. i don't know anyone that would take twelve hour flight or an eight hour flight when they can go nonstop. >> the real point -- . >> and that was -- . >> the real point is the twelve overlapping routes. they are generally not as important. >> thank you. mr. cohen? >> [inaudible] you all have? have you -- mr. mitchell is it nicer to be the memphis airport or the atlanta airport? >> every time i'm there i feel
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like i'm living a dream. any of the rest you think atlanta is a better experience for the consumers than memphis? mr. johnson? memphis is small, it's easy to get around. atlanta is huge. about only smell you get is maybe, you know, the jet stream and the -- [inaudible]
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i think -- [inaudible] both airlines serve memphis now. they serve memphis in a variety of our hubs. as you know from our testimony or written testimony, a creation of the networking that we will come about by the new american airlines will create opportunities to provide additional service to cities that we serve to the hubs. we're hopeful memphis will be among them. at this point in time we haven't had the opportunity to plan or talk about. it certainly memphis will be on the list. >> one of the things mr. anderson said or other said is the airport is better because the airlines have to stay on the tarmac -- they will, you know,
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stay away from any airport where expenses and charges are just a little bit too high for them. it makes it an impact on the decision making at the airline for sure. >> you supported with delta northwest merger. when you did so did you take any consideration that result in the city like memphis because the merger. no. i didn't. i had a broader perspective on a merger. i qualified the danger of prospective -- because we know after the mergers there are so many changes in the networking, entry and exit that may relate to the merger. in this case, as we know, probably has nothing to do with the merger because april 2008 was the one we had the hearing
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and the merger went forward and we had the great recession. how to can isolate what the merger did versus a great recession is very, very difficult. so . >> the great recession. the problem in memphis. >> shouldn't the great recession made memphis a better airport because the fact you save money and have less time burning fuel waiting to takeoff as you do in atlanta? and the great recession should have knead a more profitable airline? >> i think the problem with a place like memphis is other what we call not the larger hubs is traffic. again, if you're an airline you want to put the plane with people. and go where the people are. >> destination nevertheless airports have become like federal express. they use people instead of packages. they are places where you move people around. and memphis is a good place. mr. mitchell, mr. winston thinks
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it would bed good have international competition. do you are want have air shanghai be the carrier? >> i personally don't fly them. >> do you fly out of memphis? >> the notion that you can justify a merger based upon some future change in a marketplace such as open skies is really not responsible. it's not going happen in our lifetime. none of the 30 pilots or however many pilots behind me want to wake up find themselves working fur the spanish government. it's too complicated and certainly no justification for a merger. thank you, sir. >> i was -- [inaudible] repeatedly and i had a flight on u.s. airways and i had time. i was able to look at the scheduling chart and saw that american flew and american had better prices and deals on your
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frequent fliers going washington. is that one of the twelve routes you're talks about. is that one of the hundreds of routes that mr. mitchell mentions. >> one of the twelve. >> what will happen there? >> i imagine -- service to washington, d.c. >> will the price be u.s. airways or american airlines? >> i don't know. we haven't talked about that at all. as i said, we have announced the this merger twelve days ago. those are things we'll work on. >> it's not just memphis, cincinnati, pittsburgh, lots of hub cities who used those put a lot of investment in the airport. it was a business that was important to the community suffered because of mergers. mr. mitchell, do you see any hub cities that serve american airlines or u.s. airways seeing a similar feat as st. louis, cincinnati, or others? >> it's possible it's going to have to be fact intensive
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analysis by dha, philadelphia could be impacted, charlotte could be impacted, phoenix could be impacted because the geography of adjacent hubs. >> thank you, i appreciate my time. mr. johnson, when you come to memphis, let me know we'll get ribs and see mr. fred smith. >> thank you. when you started out you mentioned some of the airline had gone away. you have skipped texas airline i grew up. i mention that because it looks like the only thing consumers in the u.s. are looking at on airlines right now is price. you go back to the days when southwest was competing or -- and you see some very competition on something other than price. and really all you have now playing in that is virgin is trying to offer a little bit different experience. to me it really is the
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commodity. the concern we get the number of carriers down. you say there are 12 direct flights only 100 flights. to fly anywhere from corpus christy you have to change in dallass. they are the same boat. so how many routes with one stop are you competing on? >> i don't know the number. but what i can tell you is any route with one stop has significant competition. because everybody serves the routes on a one-stop basis. >> and . >> you have to . >> and i agree. i think u.s. air typically has a lower fares when i'm booking. i strong luxury i used to have being able to travel on wednesday. i have to fly on the busier days. you were talking about no hub closures. and looking at the map of the hubs, i have to agree with mr. mitchell. geography doesn't seem to make sense.
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and aa has history of closing hubs. you have nashville and raleigh and miami, charlotte, washington, philadelphia, and new york. that's a lot of hubs in a close proximity. how much assurance can you give us you're not going to shove one of those down? >> congressman, a couple of considerations. if you look at the geographic distribution of the hubs and the primary purpose of the service of the hubs, we have as we state publicly the high degree of confidence the hubs we have today will remain in place. for example, new york, which is the largest market in the world, that serves primarily for american. >> i'm not worried about new york or l.a. [laughter] >> just by example. new york serves as an international gateway. miami as serves as a gateway going south. when you look at charlotte, in north, south hub, and dallas when which is primarily midwest and going east and west, and you
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look at them. we find them to be highly complimentary of one another. i think it's unlike what you have seen in other merger situation. >> you are familiar on some of the blogs and messages boards like flier talk, you're getting 70 percent opposition to the merger from frequent fliers. do you -- it seems like you have the public against you on that. how are you taking that? >> congressman, i haven't seen those numbers. and the feedback we're getting from the customers, we're getting from the communities we serve is exactly the opposite. everybody is excited. >> let me get back to price competition. maybe mr. mitchell with you can help me out. i know, you expressed a great deal of concern about sites requiring a great deal of information from you to determine what fares you're going to get. and i think this is partially the airline industry's fault in they have made this so difficult with all of the ancillary fees.
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i get two free bags on united. my wife gets one bag. i'm a pheasant on delta so i don't get one. is there a way we can create a system where anonymously or semianonymously you can compare what the bottom line price between two airlines is going to be? >> well, first of all, with respect to the fairness, we have that system today. you can go to any online agency and understand the options. when it comes to ancillary fees like checked baggage and seat assignment and so on. it's an absolute mess. for five years, the airlines most important corporate customers have been demanding that these data on this be put to one place. >>let get the airline response. and save fifteen seconds to me.
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do you have a solution. >> let me say a couple of things. american and u.s. airways, we are strongly in favor of full transparency for consumers. that's what we've been about. >> i'm sorry i'm out of time. i'm concerned about the merger on a level as a frequent flier. we have given the opportunity to compete the other airlines. it seems to me with the mergers gone through. it's only fair to offer you the opportunity assuming you comply with the laws in place. i remain concerned it's difficult for new players to enter a competition. i yield back. >> thank you, mr. chairman. >> 98 percent of the bloggers think that we are incompetent. [laughter] you could do a scientific poll we only get 8% approval rating. [laughter] >> chairman bacchus, i want to ask a question you started off
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with. is this merger really necessary? i think that there is a general thinking that -- there is support for it, but i was -- i wanted to ask what if we really didn't have this merger going on, mr. sagers, what do you think would happen? >> well, as i said, we're not going see a liquidation of american airlines. i think in all likelihood. and i don't think we're going to see frequent liquidation of any carriers in the foreseeable future. we would preserve such competition as we have left for the near term, and i think we would see perhaps an additional degree of market discipline for
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cost containment that we have forfeited in our, you know, in our airlines competition policy. >> in mitchell, did do -- do you have a view on this if this hearing was not held and we were continue on with the business? what do you think would go on in the industry? >> if the merger were not to occur? >> yes. >> well, i think, you know, we will have a several networking carriers competing aggressively against one another. i think both carriers will do just fine. let's be honest, it's going really help creditors, it's a better deal for labor, but it's all about the revenue. we're going to -- if this merger were approved we're going three
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networking merger. the ability to coordinate fare hikes were unprecedented. fifteen last year ate were rejected. the probability they will be rejected in the future begins to go down when you have the three carriers and coordinated effect. we have the balance three networking carriers if it comes to it with more transparency in order to preserve the marketplace and competition. >> congressman? >> yeah. i was going suggest, mr. conyers and give you an extra minute to let the two airports of the airlines answer the question. >> congressman, i have been in the airline business for twenty nine years, joined american in 1984, in all of the years it's the most competitive business, i think, on the planet. it's ultra competitive. what is going to happen when these airlines combine that competition will remain. we simply are trying to become a stronger, more vibrant exeat tear against those already in
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place. it's important not only for i think it's important for the industry. it's important when you look at the international alliances, and the composition of both the star and the guidelines. it's going give consumers more choices, allow us to better compete with the airlines. >> well, there's nobody that doesn't think you're not coming out of bankruptcy. >> congressman, in my mind . >> yes. please. >> it's the case. i thank mr. mitchell for noticing how well they are doing recently. mesh had has a terrific restructuring and could easily emerge on a stand alone basis. that's not really the question. the question is why are we doing this? and for whose's benefit? our customers have been telling us they want a bigger networking. they want a networking competitive with united and delta. they want more choices and opportunity. they have been telling us
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directly and indirectly by leaving american airlines and leaving u.s. airways to fly on delta and united new bigger networking. we help our customers by the merger. second, we help the employees. u.s. airways is a smaller airline and smaller networking and revenue disadvantage. as a result to be successful we have to pay the employees less. we have made a bargain with the employees over time we can give them good jobs and benefits they're going to be less than those enjoyed by the counter part at delta and united. by merging and creating a networking like delta and united we can pay our employees more and we have agreed to pay them the same as delta and united. in addition, when we talk to people in the hubs we talked about so many times today, they don't talk to us about price issues or price concerns. they talk us to about finding ways for there to be more service to grow the hub, finding
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ways to create more december makes for travel. all of that can be accomplished by the merger, congressman. that's what we're trying to do today. >> well, you're both doing okay now. you know, what i hear you saying is that it may get tough for later, and we want to be prepared and so we're going merge now. and i'm not sure if goes along with the american antitrust institute. do either of you know what the economics scholars are thinking in terms of this kind of discussion, mr. sagers? >> yeah, i mean, there's a lot of study of airline fare changes, and it's in some dispute, but there's substantial evidence that on specific city
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pairs prices go up when concentration goes up. and we hear a lot, by the way, -- average prices going down and that's very misleading. >> mr. johnson, you respond and we'll . >> sure. first, i want to make sure that we give doctor winston an opportunity to respond. he's the expert on airline prices. after the merger it's going to be a very, very competitive industry. there will be four airlines with each having less than 25% market share and each with nationwide networks that are competitive. two airlines aca and jetblue that provide significant competition. >> there will be more competitive after the merger? >> i expect so. >> would it be if there weren't a merger? >> in fact, the industry is very competitive now, congressman, it's going to be competitive after the merger. after the merger, we will have southwest continuing as a
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low-cost, jetblue continuing as a carrier of the significant cost advantage, but three fast growing low-cost airlines. spirit, allee allegiant, and virgin. >> thank you. and i think that's what mr. winston and other's testimonies. mr. holden? >> thank you. i'll preface my remarks by saying that i'm a happy frequent flier of american airlines. it serves the roots that i travel on best -- route in this case travel on best. another airline that was emitted in the discussion which was piedmont airline which is a fine north carolina-based airline. it was a airline of the year in 1984. and i spent many enjoyable mile

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